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Avoid these five mistakes while Filing your income tax returns
Even if you aren’t new to the procedure, filing income tax returns can be difficult.
As if the tedious paperwork wasn’t enough to test your patience, last-minute difficulties on the income tax return-filing system frequently hinder a seamless completion. Add to that the numerous changes in tax rules that occur each year, and the work appears to be much more difficult. When it comes to filing your income tax taxes, mistakes are unavoidable.
For example, selecting the incorrect assessment year, failing to pre-validate your bank account, providing incorrect bank account information for refunds, failing to e-verify your return within 120 days after filing it, and so on. Then there are faults that are serious enough to warrant a notification from the Internal Revenue Service.
The complexity of the activity, in the eyes of the tax department, is not a good defence. Errors in your income tax returns forms, whether large or minor, will have to be dealt with. Here’s how to prevent some of the most typical blunders.
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Incorrectly declaring one’s residence status
The number of days you spent in India during the previous fiscal year affects your resident status and, as a result, your tax liability under income tax laws. For example, an Indian citizen or person of Indian ancestry who spent 182 days or more in India during the preceding fiscal year would be considered a’resident’. However, while determining whether she is a resident and ordinarily resident or a resident but not ordinarily resident, there are various other factors to consider.
“A lot of the time, we see taxpayers make mistakes when it comes to disclosing their residency status. They report it as Non-resident or Not Ordinarily Resident while they truly qualify as residents, and vice versa. According to Chetan Chandak, “this can lead to major tax and reporting default.” Residents must now pay tax on income received in other countries, in addition to reporting all of their foreign assets and accounts on Form ITR-2.
“If a resident taxpayer fails to do so, he or she may face significant penalties for failing to pay due taxes on overseas income as well as failing to register foreign assets and accounts.” This is especially important now that India has signed IGAs with a number of nations and established a framework for automated information exchange with other tax agencies,” he argues.
Keeping unlisted shares’ information hidden
If you own shares in an unlisted, private limited company, you must report all such stocks, sales and purchases, as well as the cost of acquisition, during the year. “This assists tax authorities in calculating your tax liability on such transactions.” If you fail to provide these data, you may be accused of submitting a false return, with the resulting penalties,” Chandak explains.
This guideline is especially important for employees who work for start-ups or other private limited firms. “That is, assuming such employees have ESOPs as part of their compensation package.” Please keep in mind that shares of foreign firms that are listed anywhere in the world may not be deemed unlisted companies for the purposes of this clause. However, depending on your residency status, those shares may be needed to be declared under the Foreign Asset Category on Form ITR.”
Have you changed jobs? Remember to report your wage for the entire year.
If you change positions during the fiscal year 2020-21, remember to request a copy of the former employer’s form-16. “In the ITR, both employers’ income must be taken into account.” You may receive a notice from the Internal Revenue Service if it is not revealed,” Soni warns.
Interest on savings accounts is not declared.
Many of us keep large sums of money in our savings accounts to cover unexpected expenses or because we’re too lazy to invest it in higher-yielding investments. The bank now pays you interest on this balance every quarter. However, this sum is not shown on your employer’s form-16. You may receive a warning from the income tax department if you neglect to search through your bank statements for the financial year to seek for savings account interest earned and declare it in your I-T returns. This also applies to interest on fixed deposits, which must be reported under ‘Income from other sources.’
Dividend income is not disclosed.
It is possible that some private investors may completely miss declaring dividend income collected on mutual funds and stocks starting this assessment year. Even if they do, some may make mistakes when estimating this year’s income. This is due to the fact that such dividends become taxable in the hands of individual investors only beginning in the fiscal year 2020-21, and so represent a new development this assessment year.